Sebi is badly in need of a performance audit by a peer. The results of being left to its own are there for all to see. Photo: Aniruddha Chowdhury/Mint

Ajay Tyagi, chairman of the Securities and Exchange Board of India (Sebi), is fast gaining a reputation of clearing files that have been gathering dust for years. Within a month of taking over the reins from U.K. Sinha in March 2017, the regulator issued an order against Reliance Industries Ltd. It involved disgorgement of unlawful gains worth Rs447 crore along with a hefty interest penalty for over nine years. Last week, it barred Price Waterhouse from auditing listed companies for a period of two years in a case dating back to 2009.

Investigations in both cases had been completed years ago. As such, while the alacrity at Sebi currently is laudable, it also puts the spotlight on the years of inordinate delays under the previous regime.

While clearing old files is all well and good, it’s high time policymakers woke up to the reality that a lack of accountability at Sebi has done the institution much harm. Urgent measures are needed to stem the rot.

This column has pointed out earlier that Sebi is now in the mature phase of the life-cycle of a regulator. It has nothing much original left to do, and is left mainly with the painful and thankless job of enforcing regulation. The above-mentioned cases show that Sebi has been found wanting in its main role.

As William Penn famously said, “To delay justice is injustice”; this is considered as a legal tenet to this day. Warren E. Burger, then-chief justice of the United States, said in an address in 1970 that “a sense of confidence in the courts could be destroyed if people come to believe that inefficiency and delay will drain even a just judgment of its value”.

Sebi’s delays in the Price Waterhouse and Reliance cases are inexcusable. In fact, the Supreme Court had said in January 2017 that Sebi was dragging its feet in the Price Waterhouse matter, and that too on a trivial issue. The Delhi high court, earlier, made a similar observation in another case involving DLF Ltd.

Consider the irony of it all. Way back in June 2011, when the Securities Appellate Tribunal allowed Price Waterhouse’s petition seeking access to material unearthed by Sebi in the Satyam case, the tribunal’s presiding officer had questioned Sebi’s arguments in his lucid order.

If Sebi had heeded his instructions rather than appealing the order in the Supreme Court, it would have saved itself much embarrassment.

After all, the “trivial” issue for which the Supreme Court castigated Sebi was its reluctance in handing over material it unearthed in its Satyam investigations.

In his order, justice N.K. Sodhi had cited an earlier Supreme Court order that stated, “If only the disciplinary authority had asked itself the question: ‘What is the harm in making available the material?’ and weighed the pros and cons, the disciplinary authority could not reasonably have adopted such a rigid and adamant attitude. On the one hand, there was the risk of the time and effort invested in the departmental enquiry being wasted if the Courts came to the conclusion that failure to supply these materials would be tantamount to denial of reasonable opportunity to the appellant to defend himself. On the other hand, by making available the copies of the documents and statements the disciplinary authority was not running any risk. There was nothing confidential or privileged in it.” (Emphasis ours.)

In hindsight, Sodhi’s comments were prescient. And the Supreme Court called out Sebi’s weak argument for what it was. In the process, precious six years or so were wasted before Price Waterhouse had access to the entire material and could begin cross-examining Sebi’s witnesses. In other words, witnesses were being cross-examined in 2017 for misdemeanours committed at Satyam 10-15 years ago.

From the looks of it, no one is bothered by these serious missteps. How then can accountability be fixed?

As pointed out in this column earlier, Sebi is badly in need of a performance audit by a peer. The results of being left to its own are there for all to see.

It can take a cue from other organizations that do so. For instance, every three years, independent organizations perform a peer review of the US government accountability office (GAO), to determine whether it is suitably designed and operating effectively. The audit is done by oversees regulators such as The office of the auditor general of Canada. Likewise, a suitable overseas organization can help with a thorough review of Sebi’s practices.

Also, as recommended by the Financial Sector Legislative Reforms Commission (FSLRC), Sebi must publish a performance report that captures the efficiency of the regulatory system. The FSLRC had said that performance systems must require the regulator to create and publish performance targets, and that the performance measurement system should be reviewed every three years to incorporate global best practices. Besides, it had recommended the formation of a review committee, comprising the non-executive members of the regulator’s board. This committee is to provide oversight of compliance of the regulator and ensure greater transparency in the functioning of the board of the regulator.

While Tyagi has begun on a decent note, he can leave behind a lasting legacy by incorporating FSLRC’s recommendations and opening up the regulator’s practices for scrutiny.